International
Wednesday Newspaper Review - Irish Business News and International Stories
By Finfacts Team
Mar 15, 2006, 06:51

Other strongly-performing stocks for the AIB-run portfolio were Sweden's Fabege (up 21pc) and Dutch firm Corio (up 37pc), plus 26 other property stocks.

Since the fund began trading on April 4 last year, it has returned 38.57pc up to March 7 last, net of all fees and costs.

This return compares very favourably with one of 25.61pc from the FTSE Eurotop 100 index of European shares over the same period, while the Irish property market returned 24pc gross for the calendar year 2005.

The European Property Stocks Fund invests in a geographically diversified spread of property companies operating in the European property market (including the UK) and offers several options to investors seeking to gain exposure to this sector.

The fund allows access to European property investments to investors who may lack the resources to invest in a single property, or who may be unwilling to take on the risk and costs inherent in such an investment.

According to AIB Investment Managers head of product management Jim Leen, they have been delighted with the performance of the fund.

"A return of over 35pc in less than eleven months marks a really significant achievement for the fund."

The Irish Independent also reports that the European Central Bank will do whatever is necessary to maintain price stability, Irish Central Bank governor and member of the ECB Governing Council, John Hurley, said yesterday.

He was one of several Council members, along with ECB President Jean-Claude Trichet, to comment on the outlook for the eurozone yesterday.

The comments are seen as keeping up the expectation of another rate rise, perhaps as early as May.

ECB governors are stressing that they do not have a timetable for interest rate rises, but will act on the data.

"Our future decisions are not predetermined," Mr Hurley said.

"What we do now is to assess the data."

The euro rose to $1.2027 against the dollar, its highest level in a week, driven partly by Bundesbank President Axel Weber, who declined to say if he considered the ECB's key rate of 2.5pc was at an "appropriate" level.

The Irish Times reports that the country's 1.5 million VHI subscribers are facing price increases of nearly 50 per cent over the next three years, according to a confidential report on the health insurance sector commissioned by the Department of Health.

The report by BDO Simpson Xavier Corporate Finance says the State-owned health insurer has forecast that it will require increases of 15 per cent per year irrespective of whether it receives millions of euro in payments from rivals under a controversial risk equalisation scheme for the industry.

BDO Simpson Xavier says rises over 15 per cent annually over the next three years will be required to meet future commercial solvency requirements.

The report says the Government instructed VHI to take steps to build up its reserves following a decision in December to reform the company's corporate status.

It says Bupa Ireland has forecast increases of 20 per cent in 2006, 12.5 per cent in 2007 and 9 per cent in 2008 for its 440,000 subscribers if risk equalisation payments have to be made.

The report says VHI has projected, irrespective of the introduction of risk equalisation, that the overall market will decline by 2.3 per cent to February 2009, that there will be premium increases of 15 per cent and that its loss ratio will improve due to a better claims mix, lower medical inflation and higher premium income.

It forecasts that if risk equalisation is not introduced, Bupa Ireland would make profits of more than €20 million annually over the next three years.

It says Bupa's contention that a 20 per cent increase in prices required to meet risk equalisation payments would make the company uncompetitive ignored the fact that VHI will have to raise its prices by at least 15 per cent annually to move towards reaching solvency requirements.

The Irish Times also reports that Ireland is now determined to develop native businesses with "global ambitions" similar to those of the US companies which have invested in Ireland for many years, the Taoiseach said last night.

He made his remarks to an audience including many San Jose business leaders as four Irish companies announced plans to expand in the US through acquisition, partnership and contract deals worth €9 million to the companies.

Speaking at a dinner marking the 20th anniversary of the twinning of Dublin with San Jose, Mr Ahern said over 600 US companies directly employ more than 90,000 people in Ireland, and that this amounted to 5 per cent of the Irish workforce. "Total US investment in Ireland, at over $73 billion, is nearly five times what it is in China," he added.

Referring to the expansion plans of the four Irish companies, Mr Ahern highlighted the growth of Irish businesses in the US. There were now some 300 offices of Irish companies in 35 of the 50 US states, he said, and employment by Irish companies there now stood in excess of 55,000.

The Taoiseach said the most important factor driving Ireland's success was education. EU membership, a stable economic environment, low corporate tax and our English-speaking population also played a part. Mr Ahern was speaking at the Spirit of Ireland dinner attended last night by business and civic leaders and Irish-Americans.

He gave the same message at a meeting in the afternoon with Hewlett Packard chief executive Mark Hurd, whose company employs some 4,000 people in seven different projects in Ireland. Mr Ahern discussed the prospects for links between the company and Ireland in the context of plans to develop "e-government" and "e-health projects".

In his speech Mr Ahern said that 1986, the year of the twinning of the two cities, was "a bleak time" in Ireland involving "mass unemployment, spiralling national debt and a deep sense of despair for many people". In present-day Ireland "our economy is thriving, our people are at work, and Ireland is at peace It is with great pride that I stand here tonight as the leader of a country that has been transformed."

In relation to the North, the IRA had ended its armed campaign and decommissioned its weapons.

"It was also a triumph for our friends around the world, and especially here in America, who steadfastly supported us as we sought to build a better future." Dublin and San Jose had built political, cultural and sporting connections, he added.

"However, the most obvious, and possibly the most important, feature of this relationship has been in the technology sector Big-name Silicon Valley companies like Apple, Intel, Xilinx, Hewlett Packard and Oracle have had significant operations in Ireland for a number of years" and Ireland had also attracted companies that are leading the internet revolution, such as Google, eBay and Yahoo.

Earlier he attended a lunch hosted by Tourism Ireland at which he said tourist numbers to Dublin had increased five-fold since 1986.

The Irish Examiner reports that the Government was urged yesterday to remove all barriers to the expansion of the renewable energy sector.

Irish Creamery Milk Suppliers Association (ICMSA) rural development chairman Tommy Cooke, who made the call, said Ireland has one of the most poorly developed renewable energy sectors in the EU.

"The announcement in Budget 2006 in relation to biofuel excise relief has not gone far enough to help move us from this embarrassing position," he said.

Mr Cooke said progressive EU member states such as Germany, Belgium, Austria and Spain operate on the basis that there is no consumption tax, nor any limit on the volume for biofuels.

However, he added, the Irish Government insist on going against the grain, using excuses like the cost of an open-ended system to the exchequer. When it announced the excise exemption in the budget, it stated that it will cost the exchequer €205 million annually.

The Financial Times reports that the US administration warned on Tuesday it was heading for a confrontation with China over bilateral economic relations if Beijing did not move immediately to open its markets to American imports.

Carlos Gutierrez, commerce secretary, delivered a sharply- worded speech just a month before a visit to Washington by Hu Jintao, the Chinese president.

He said the US had almost run out of patience waiting for China to take significant steps to reduce its ballooning $200bn trade surplus with the US.

He spoke hours after Wen Jiabao, the Chinese premier, ruled out further sharp adjustments in the renminbi's value, scotching hopes of a substantial revaluation ahead of Mr Hu's visit.

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Data out on Tuesday showed that the US current account deficit suffered its fastest quarterly deterioration in the final months of last year, swelling to a record 7 per cent of national income.Mr Gutierrez said: "China's failure to address economic frictions will have consequences."Without concrete results, the administration, and the American people, may be forced to reassess our bilateral economic relationship."He warned of rising anger in Congress, where support is growing for trade action against China. "Without results...Congress may go down a path that none of us wants."Beijing, Mr Gutierrez added, could with "the stroke of a pen" move to open up telecoms, IT and state procurement, and do far more to protect intellectual property. His speech was the latest high-profile US attack. John Snow, Treasury secretary, said last week: "The time has come and gone when they should have acted more decisively on the currency".

Mr Wen said it was "no longer necessary to take one-off administrative" measures to raise or lower the renminbi's value after July's 2.1 per cent revaluation against the dollar. "There will be no more surprises," he said, indicating that China would focus first on building a robust foreign exchange trading platform.

The renminbi has appreciated by less than 1 per cent under the tightly-managed float introduced with July's revaluation, but there is unrest in China over the pace of market-based reforms.

Mr Wen insisted China would sustain the pace of reform but said the state must keep a dominant controlling share in the state-owned commercial banks.

His remarks could touch on the bidding war between Citigroup of the US and France's Soci้t้ G้n้rale over the debt-laden Guangdong Development Bank.

Citigroup is seen as the favourite but its bid stretches China's rule capping foreign investments in banks at 25 per cent.

However, Mr Wen's comments on "state-owned commercial banks" do not necessarily apply to GDB, which is classified as a "shareholder" bank.

The FT also reports that the Group of Eight industrialised nations are poised to back a broad expansion of nuclear power and call for thousands of billions of dollars in new investment to boost oil and gas supply.

A leaked copy of the G8's "Action Plan", intended for publication in St Petersburg on July 16, states: "We believe that the development of nuclear energy would promote global energy security."

The draft plan calls for the "development and introduction of innovative nuclear power systems with natural safety barriers" that can prevent nuclear material from being used to create weapons and meet environmental concerns.

The G8's strong backing for nuclear power was immediately welcomed by the industry, which has seen a revival of its fortunes in the two decades since the 1986 Chernobyl accident in Ukraine.

"For the nuclear industry this is very encouraging news," said Philip Dewhurst, chairman of Britain's Nuclear Industry Association.

But environmental groups sharply criticised the G8 plan, saying it represented a climbdown from the group's efforts to promote energy conservation and halt climate change at its last meeting in Gleneagles in July.

"It's just talking about supply, supply, and more supply," said Stephen Kretzmann, executive director Oil Change International, a US pressure group that has circulated the draft plan. "It doesn't set out the new vision [of energy efficiency] that certainly people are trying to talk about in this country."

The G8's draft plan cites estimates that investment of up to $17,000bn (ฃ9,700bn) will be needed by 2030 to meet rising energy demand and create a "shock-proof" system of global supply.

It calls for a sharp expansion of oil and gas production and refining and petrochemical production. It says that "clean coal" technologies should be introduced, including carbon capture and storage.

"We should start to think and act now on how to improve the global energy architecture?.?.?.?[to] preclude possible devastating conflicts driven by eventually disruptive competition for energy sources," the draft plan states.

Although the plan could change before July it shows the G8 is actively considering nuclear power as a way to help solve the world's energy problems.

The New York Times reports that Airbus is in the late stages of negotiations to build an assembly line for its A320 passenger plane in China, a landmark deal that would significantly lift its prospects for business there.

Producing European planes in China would open a new front in the battle between Airbus and Boeing for the world's next great aviation market, as well as underscore the growing role of state enterprises in the global economy.

Four Chinese cities are vying for the plant, which would produce up to four A320's a month, in cooperation with Chinese state-owned aerospace manufacturers, industry experts said. The A320 is a short-haul jet that serves primarily domestic routes, which are booming across China.

On the short list for the project, these experts said, are Tianjin, a port near Beijing; Xian, an aircraft-manufacturing center in north-central China; Shanghai, the site of a McDonnell Douglas assembly plant that has closed; and Zhuhai, a port near Hong Kong.

While some analysts said Tianjin appeared to have an edge and Zhuhai was the dark-horse candidate, two senior executives close to Airbus said the competition was still undecided. The executives said they could speak only anonymously because of the delicacy of the negotiations. Airbus and the Chinese government are expected to make a final decision sometime this summer.

The collaboration between a government-subsidized company from Europe and state-owned aircraft manufacturers in China would be a striking example of the new prominence of state enterprises worldwide — a development that has worried some critics in the United States.

The recent uproar over a Dubai-controlled company that was blocked from acquiring the operations of six American ports illustrates the political sensitivities of such cases. The company, DP World, defused an outcry in Congress by agreeing to divest itself of its American holdings.

Aircraft technology has long raised security concerns in the United States because of its capacity for military use. Putting an assembly line in China would add to those concerns, analysts said.

"Any major investment in Chinese production facilities by Airbus will be used in the U.S. Congress to demonstrate a dangerous looseness in the sharing of sensitive technology," said Loren Thompson, a military analyst at the Lexington Institute, a policy lobbying group in Arlington, Va.

"No matter what they say," he added, "it is one step further down the path toward Chinese technology parity with the West."

Airbus, owned by an alliance of European aerospace companies and based in Toulouse, France, has said it is well aware of these arguments, but that a final assembly line in China would not pose a danger.

Publicly, Airbus has said only that it is considering a number of Chinese cities for a plant to produce A320's. It has not said which cities, nor has it committed itself to an agreement.

"We are looking at sites," a spokeswoman for Airbus, Barbara Kracht, said. "Locations are being investigated, and until things are finalized, we won't discuss the various options."

The plant would essentially clamp together parts of the A320, a small part of the manufacturing process. More than half the components, including technology-rich elements like the cockpit, would be made in Europe and flown to China. The two senior executives close to Airbus said the portion of work at the China plant would represent 4 percent to 5 percent of the value of the aircraft.

Even some traditionally sharp critics of China, like Larry M. Wortzel, the chairman of the U.S.-China Economic and Security Review Commission, said the final assembly of A320's in China would be unlikely to transfer militarily important technology to the Chinese.

If anything, he said in an interview, it might teach China's aviation industry better quality control.

The transfer of secrets for the fabrication of high-grade alloys for jet engine manufacture or of certain composite materials — not moves that Airbus has said it would consider — would be more of an issue.

"It would not pay to transfer that technology to China, but assembly — I don't have a problem with that," Mr. Wortzel said.

Airbus has put China at the center of its expansion plans, aiming to capture half of a market that it thinks could nearly double, to 1,790 aircraft, by 2022. Airbus has 344 planes in service in China, Hong Kong and Macao, but Boeing still dominates, with nearly two-thirds of the market.

In December, China placed an order for 150 A320's with a list price of close to $10 billion. China and Airbus announced the order during a visit to France by China's prime minister, Wen Jiabao, when Airbus pledged to consider the production line.

Analysts interpreted the announcement as a quid pro quo, showing the lengths to which Airbus has had to go to break into the Chinese market, despite being active there since 1985.

George Behan, a spokesman for Representative Norman Dicks, a Democrat from Washington State, where Boeing's commercial aircraft division is based, said he saw little surprise in Airbus's moves: "This is Airbus's modus operandi, the way they intend to compete with Boeing internationally."

Boeing has no plans to build a production line in China, but it has still won orders to supply 150 of its 737's to Chinese carriers. Seventy of those are firm contracts and the rest commitments. Like the A320, the 737 is a single-aisle aircraft suitable for short-haul domestic routes.

Boeing has also booked orders from the Chinese for 60 of its new medium-size double-aisle plane, the 787 — with parts of it to be manufactured in Japan. The carriers include Air China, Shanghai Airlines, Hainan Airlines, China Eastern Airlines and China Southern Airlines.

For Europe, Airbus is also a potent tool to cultivate commercial ties with China. Chinese leaders and President Jacques Chirac of France have celebrated visits to each other's capitals by signing aircraft deals.

Beyond the assembly line, Airbus has pledged to buy more aircraft parts from Chinese manufacturers, increasing its procurement to $120 million a year by 2010 from $14.5 million in 2003. Airbus and the China Aviation Industry Corporation have opened an engineering center, which will eventually employ 500 engineers, working on a new Airbus plane, the A350.

Analysts said, however, that Airbus might not gain much profit from assembling a plane like the A320 in China. Single-aisle planes tend to have thinner profit margins, and less advanced technology, than twin-aisle planes like the new A380 super-jumbo or Boeing's 787 and 747.

The demand for planes in China is so strong, said a person close to Airbus, that it could run its Chinese assembly line at full throttle and still have to supply A320's from its European factories.

Airbus, however, will have to contend with workers in France and Germany, who fear the loss of skilled jobs to China. Anticipating that, the company said last month that it would add 1,250 jobs in Germany this year, mostly at its Hamburg plant, where it also assembles A320's.

Unlike cars, planes cost very little to deliver — they are simply fueled and flown there. But shipping bulky aircraft parts long distances to assembly plants can be very expensive.

So while automakers like Toyota and Honda have built factories in the United States, aircraft manufacturers have generally preferred to keep production near their bases of operations — Seattle in Boeing's case, and Toulouse, France, and Hamburg, Germany, in Airbus's case.

"Everything else being equal, you would never choose to put a production line in China," said Richard L. Aboulafia, an analyst at the Teal Group, an aerospace consulting firm in Fairfax, Va.

While tirelessly marketing its planes in China, Boeing has shown no enthusiasm for assembling jetliners there. But like Airbus, which buys emergency exit doors for the A320 from a supplier in Shenyang, Boeing sees good reasons to buy a range of parts in China for single-aisle jets.

It is buying 737 horizontal stabilizers, made in Shanghai, and Boeing 737 vertical fins and trailing edge wing ribs, manufactured in Xian.

As Robert Laird, Boeing's vice president for sales of commercial aircraft in China, Taiwan, Hong Kong, Macao and the Philippines, puts it: "We have seen the strategic importance of China both for our aircraft and as a supplier for parts."